Stocks and Bonds
First quarter, as everyone knows, was a very rocky quarter for the stock market. That topic hit a lot of public air. We see it on the front-page of the newspaper but what wasn’t initially covered was that it was also a struggling quarter for the bond market. When stocks and bonds are down together that’s something that’s very rare. Of the 185 quarters that we’ve had since 1976, stocks and bonds have only been down at the same time 19 times. What does that mean going forward? There’s only been four instances where we’ve had two back-to-back quarters of negative bonds and socks. It’s very likely that we will see a recovery at this point and returns going forward 12 months are very positive. Three of the four instances where we had negative returns for stocks and bonds for back-to-back quarters, also went with a recession. This being said, as long as we can avoid recession, which would mean we’re in a recession right now, then the likelihood we will see higher prices going forward and we have likely hit the bottom here.
The Housing Market
As rates have been spiking the past couple weeks, we’ve been getting a lot of questions about the housing market and the impact that rising rates will have. You can see in the chart show in the video for this episode, mortgage rates have risen significantly over the past few weeks. Even though the average 30-year fixed rate is close to 5% today, which is actually up from 3.5% percent just a few months ago, we don’t think rising mortgage rates alone will not crush the housing market. However, they will likely slow down the irrational exuberance around sky high home prices in some locations. A 150-basis point rise in mortgage rates is probably not enough to cause demand destruction. As you can see in a chart shown in the episode, one reason for that is due to the wave of millennials coming into peak buying age. That wave will continue supporting the housing market even though mortgage rates and home prices are rising at an extraordinary pace. Also, years of under building are suppressing housing inventory and we believe that inventory will remain low for some time. In fact, housing inventory is at all-time lows across the country right now. We’ll continue to keep everyone updated on housing as it continues to be a very hot topic.
Companies started issuing a lot of debt around the height of the pandemic. Interest rates were very low and companies, as a result, have of a lot of cash on hand. That is the good news. The bad news is that inflation is not only bothering the consumer, but also affecting companies as a whole. A chart shown in the video for this episode shows that companies are expected to have sales growth around 10%. The earnings growth, however, not including energy, is less than 1%. As rates rise, it’s going to be interesting to see if companies still continue to issue debt with low earnings coming in.
The S&P 500 was down for the week, coming in at a price last Friday of 4,488. That gives us a new short-term resistance level of 4,530 and a new support level of 4,450. From a long-term standpoint, the 200-day moving average for the S&P 500 is at a price of 4,492. Friday’s close price was very close to the 200-day moving average and will be important to watch moving forward, as we establish a new floor or ceiling for the markets.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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